The Hindu Business Line : RBI policy pushes Sensex down

Mumbai, Oct. 30 Stocks closed lower on Tuesday after the Reserve Bank of India increased the cash reserve ratio for banks, knocking the benchmark indices off new highs reached earlier in the day. The Sensex had touched 20,238.16 and the S&P CNX Nifty 5,975 before the RBI announcement dragged them southward. The Sensex closed the day at 19,783.51, lower by 0.97 per cent from Monday.

Agency reports that an article in the Wall Street Journal had cast doubts on the possibility of a rate cut by the US Federal Reserve on Wednesday was an additional dampener. A Fed rate cut would have meant more foreign funds chasing Indian stocks, said an official with a large broking house. The India rally that started mid-September after all, was sparked by a Fed Rate cut.

The CRR increase is meant to reduce the loanable funds with the banking system, said Mr Kaushal Sampath, COO, Dun & Bradstreet India, who said that the hike was expected.

This, coming close to the festive season of buying, had a negative effect, in particular on stocks in the auto sector and the banking sector itself, said brokers. “Today there was more of profit booking as people had taken positions on Monday anticipating a cut in the repo rate,” said Mr Deven Choksey of K R Choksey Securities. “Many of the funds are also churning their portfolios taking into account the recent half-year results. We are also heading for the festive season and there is some amount of ease as far as markets are concerned.”

Among the blue chips, Maruti led declines, falling 8.46 per cent. M&M dropped seven per cent. Top among the gainers were Reliance Energy, which rose 3.9 per cent, on news that its board had approved the demerger of its infrastructure and construction business. Advances, at 884 stocks on BSE, were outnumbered by declines, at 1343 (58.65 per cent).